Samsung shifts upmarket to tackle sagging phone sales

A day after Samsung presented a depressing assessment to investors of the global handset market in 2023, the world’s biggest smartphone maker delivered an upbeat, splashy presentation to the media to launch its latest Galaxy-branded phones last week.

The contrasting messages of stagnation and innovation did not illustrate hype or false optimism about the new hardware, according to analysts, but showed Samsung was setting out its stall to maintain market share by doubling down on the premium end of the market.

“Amid prolonging geopolitical issues, continued inflation and the continued economic slowdown, we expect the smartphone market to contract in 2023, with the mass market impacted the most,” Samsung vice-president Daniel Araujo said on a fourth-quarter earnings call in Seoul, where the Korean company provided the details behind its lowest quarterly profit in eight years.

On the other side of the world, at the Galaxy launch event in San Francisco, TM Roh, the head of Samsung’s mobile business, said: “We intend to focus on the premium segment in developed markets as well as some of the countries where we are seeing solid growth.” He added that he had seen a “noticeable shift” to luxury models in developing markets.

Samsung’s renewed focus on high-end phones — the new S23 models feature advanced camera improvements and longer battery life — comes as it struggles to compete with lower-cost Chinese rivals in the low-to-mid-end smartphone market, while premium-focused Apple has outperformed the market with record services revenues in its last quarter from its software ecosystem.

The South Korean company aims to stay on top and achieve higher average selling prices with the S23 line and other premium phones that have foldable screens — the new S23 Ultra with 1 terabyte of storage retails for more than $1,600 in the US, before discounts. The mobile business will also be dropping some mid-priced models to cope better with the increasingly polarised market. Samsung also lifted the lid last week on its renewed interest in mixed-reality offerings for smartphone users, in a partnership with Google and Qualcomm.

“Samsung is focusing on the high end not only because of the better margins but also because it is more resilient than the rest of the market,” said Bryan Ma, an analyst at IDC. He noted that global smartphone shipments fell 11 per cent overall last year to 1.2bn units, the lowest since 2013, yet smartphones costing more than $600 only slipped about 1 per cent.

Despite economic headwinds, Samsung was able to increase its market share to 21.6 per cent last year from 20 per cent in 2021, with its Chinese rivals’ sales suffering from Covid-19 lockdowns, according to IDC.

Samsung hopes it can regain lost ground in China, where its market share has fallen to about 1 per cent, by launching a specially designed foldable model for Chinese consumers this year, although analysts remain sceptical about its chances of a significant recovery.

“One exception to the staleness in smartphones is the foldable category, where Samsung is the clear leader,” said Leo Gebbie, an analyst at CCS Insight. “This new form factor provides a real point of differentiation and excitement in the market.”

The company has enjoyed early success in this high-margin niche, although competition in the relatively new segment is expected to intensify with Chinese rivals entering the market.

“Sales of foldable phones keep increasing, but the growth rate seems slower than expected, as not many consumers are attracted to its allure relative to high prices,” said Park Kang-ho, an analyst at Daishin Securities.

Peter Lee, a Citigroup analyst, expects the industry’s next move will probably be the development of two folds for a wider screen. “The Chinese smartphone makers will launch foldable phones to compete and there will be differentiation in screen sizes, but Samsung does have a technology advantage over them,” he said.

In addition, Samsung is now trying to re-enter the extended reality (XR) market, covering virtual (VR) and augmented (AR) or mixed-reality products and software. The market is being seen increasingly as a long-term growth driver to counteract falling smartphone sales.

Roh was joined onstage in San Francisco by executives from Google and Qualcomm, companies it had worked with in the XR space about a decade ago. They did not reveal a concrete project but are likely to develop a mixed-reality device together, with Apple expected to launch its own XR headset this year.

Samsung first entered the market in 2014, launching its Gear VR headset in partnership with Oculus VR. It dropped the product in 2018 due to a lack of demand. However, with its strengths in chips and displays, it has been courted by many tech firms to collaborate on mixed-reality devices.

Meta chief Mark Zuckerberg visited Samsung’s research centre in Silicon Valley in October to discuss a potential tie-up with executives, while Samsung Display is planning to build production facilities this year for so-called micro OLEDs, a next-generation display technology suitable for XR devices.

“Samsung is an attractive partner in VR given its vast scale and manufacturing capabilities. It also has experience across multiple facets of VR, including not just working with Meta/Oculus on the Gear VR many years ago, but also with Microsoft,” said Ma. “And with the potential of Apple entering this space, it’s not surprising to see parties banding together to brace for Apple’s entry.”

Despite growing interest, VR has yet to produce a mass-market product, with analysts blaming the inconveniences of wearing the hardware and a lack of interesting content.

“The questions are still whether the hardware and software are good enough and whether people will have a strong enough appetite for those devices,” said CW Chung, an analyst at Nomura. “If the pandemic had continued, they would have needed them more, but after the reopening, people want to spend more time outside.”